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ECONOMICS AND FINANCE IN A GARRISON STATE By KARL R. BOPP, Vice President Federal Reserve Bank of Philadelphia before the LEAGUE OF WOMEN VOTERS Tuesday, April 24., 1951, at 8 p.m. Washington, D. C. I. THE PROBLEM A. Statement: Great expansion of Defense effort B. Contrast: 1. 1941 vs. 1951 Relative magnitudes (a) 11.6 million men vs. (b) 40% of GNP vs. 16% million 2. Status of economy - partial vs. full employment 3. Psychology - deflationary vs. inflationary Private spending following invasion of South Korea 4-. Experience with direct controls (a) Need for unity (war patriotism) to work (b) Do not solve problem 5. C. II. Probable duration The real burden We ought to be able to bear another 5% sacrifice COMPREHENSIVE PROGRAM TO MEET PROBLEM A. Increase production; necessary; but 1. 2. B. not solve The over-all picture (a) We receive income for all production, but (b) Can spend only on civilian goods, therefore (c) Inflationary gap (Planned expansion of plant & equipment - $24. billion) Increasing'capacity vs. current consumption Durables vs. non-durables + services Regulations W and X Monetary - fiscal policy: 1. Kill indirect controls Limit Government expenditures (a) Federal non-defense Difficulty: Voters want their own pet projects continued - (b) (c) 2. C. 2 - Federal defense Don't want to put dollar sign on lives of American armed forces Local "Necessary projects already long delayed" Cash surplus Difficulty: Agree we need more revenues but "my taxes are already too high" 3. Control of private credit Lending: non-bank bank central bank 4- Debt management Treasury-Federal Reserve agreement - a victory for Joe Doaks The role of direct controls Food - End of war —> today Average hourly earnings Wholesale prices Farm price index 58% 75% 58% Equity among groups No reduction in standard of living Retail food prices & markups about \ to farmer § to processors Farm income 1947 17.8 bill 1949 15.9 n 1950 13.0 "
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